Activity based cost (ABC)

This refers is a costing technique which matches costs with the activities they relate to, rather than to a business function.

Activity based costing states products are created by activities, these activities consume resources. For example, ABC allocates both direct and indirect costs from across the organisation to an activity such as handling a customer complaint. By understanding the true cost of each activity, decisions can be made on how to improve performance or reduce costs.

Activity based cost is a term normally used in management accounting and performance management.

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